APA Group allows CKI access to books for $13 billion takeover bid

Hong Kong's wealthy Li family have swooped on the steady returns offered by APA Group's vast pipeline network in their biggest overseas acquisition bid, with a blockbuster $13 billion all-cash offer set to tighten their grip on Australia's energy infrastructure and continue to cut their exposure to China.

The $11-a-share offer for the country's largest gas pipeline operator is the first major move by Victor Li, who recently took the reins of the family fortune from billionaire patriarch Li Ka-shing, and fast tracks their investments in the lower but more stable returns offered in developed markets as the family have cashed out of investments in Hong Kong and China.

APA Group chief executive Mick McCormack has acknowledged a takeover of his gas transportation group by CK Infrastructure would create "a pretty big footprint" in Australia's energy sector after revealing the board has granted the Hong Kong giant due diligence.

The offer is a 33 per cent premium to APA's previous close and attractive enough for the board to grant the bidderaccess to its accounts.

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"We've done that on the basis that the CKI consortium has said that they've engaged with FIRB and the ACCC and obviously must be confident about what will be forthcoming," Mr McCormack told The Australian Financial Review.

"It's a serious bid and we're treating it accordingly. They've obviously formed a view that there is a path forward for them to get those approvals."

APA shares surged 21 per cent to $10, suggesting doubts in the market the transaction will proceed.

"We see a low likelihood of interlopers, but approval from the Foreign Investment Review Board may be challenging considering APA's dominant position in gas pipelines on the east coast," said JPMorgan analyst Mark Busuttil.

Still, APA has itself been at loggerheads with Canberra over pipeline regulation and the extent to which transportation tariffs have contributed to the surge in gas prices in the eastern states.

In contrast, the CKI-led consortium said it "supports increased regulatory oversight and transparency" in gas transmission and that it is "fully committed: to APA's existing projects and to investing more in the sector".

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CKI deputy managing director Andy Hunter said the group welcomes the APA board's decision to engage.

APA chairman Michael Fraser said the bid is attractive enough to grant due diligence. Michel O'Sullivan

"The consortium believes the all-cash proposal provides a compelling opportunity for APA security holders to realise value for their securities," Mr Hunter said.

The first contact between CKI and APA is understood to have been several weeks ago, leading up to Wednesday's announcement that due diligence - expected to take about four weeks - has been granted on a non-exclusive basis.

"I don't know how this will play out in the market, in the media, because if it does happen it will be a sizeable transaction with a pretty big footprint," Mr McCormack noted.

In a bid to secure competition watchdog clearance, the bid group, which includes CK Asset Holdings and Power Asset Holdings, hass offered up the divestment of a multi-billion dollar package of Western Australian assets that would have their own standalone management team.

Assets that would be sold include APA's stake in the Goldfields and Parmelia gas pipelines and in the Mondarra gas storage plant in WA, where CKI already controls the main gas trunkline, the Dampier Bunbury pipeline.

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On the east coast, where APA owns a grid of interconnected pipelines, the bidding consortium's assets are focused on electricity distribution rather than gas.

The ACCC said it is "aware" of the proposed deal and will begin a public review of the merger after it receives further information from both sides. It gave an initial timeline of about 12 weeks for its examination and said it would consult with industry participants as part of the process.

APA's largest shareholder, UniSuper, which owns 16.1 per cent of the gas transporter, "fully supports" the decision to allow CKI to conduct due diligence, said chief investment officer John Pearce.

APA chairman Michael Fraser said the board would continue to evaluate the proposal and would update security holders as appropriate, with no recommendation yet being made. The company is being advised by Macquarie and King & Wood Mallesons.

"The board believes APA has a very attractive business and is well positioned to continue delivering strong results and ongoing growth irrespective of whether the proposal proceeds to an offer," Mr Fraser said.

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